First, it pains to read about the unfortunate incident involving Uber in New Delhi.As a citizen of this country, I hope and demand the law of the land puts its best foot forward to bring justice to the victim and culprits to the book.

The unfortunate incident also raises some important questions about emulating successful business ideas from west in India. It takes little effort to find a list of ‘market place’ startups trying to organize the unorganized sector in India. Be it providing domestic services or household goods.

Relatively,it costs little and technically easier to bring up a site to match services and consumers.The challenge however is if the business has to endorse the behaviors of vendor and the consumer, one to the other. That is beyond the need to have a sight on the quality of the service/product being transacted.

Imagine if the business has to send a plumber to a household.The business has to endorse not just the quality of the service but also the behavior of the plumber at the household.

Similarly, if the business has to send a female maid to a household, business has to endorse the behavior of the customer towards the service provider.

Verifying a service provider could be relatively easy but not cheap.

The back ground checks needed

Strong lawyer to formulate disclaimers and contracts to share the risks

Operational model that defines strict processes and policies. And adhering to those policies and procedures.

All the above are going to cost a fortune for a business.The startups typically do not think about or understand the costs involving these.

Verifying the consumer may never be fully possible because its not practical to have a background check done on an entire population.

These are some of the lessons we learned from our failed startup Makemydabba.com.We enabled home made food delivered to needy end customers at work and home.In no time we realized that we are enduring a sizeable risk of making unknown people meet at places we have no control on through our portal.This is beyond the quality risk of the food being served.

We thought about models to mitigate those risks, but all of them cost a lot more money involving lawyers, our own delivery models and more.That’s where the big funds needed to keep the business afloat.A lot of people continue to ask us why a successful startup like Makemydabba had to close down for lack of funds.Above is probably the primary reason why more funds were needed.

Coming back to the incident involving Uber, they cannot claim to be a startup.They must have learned their lessons at the places where they are successful.How they failed to bring them into India is something we should wait and see as the investigation process takes its course.

In addition however, we must acknowledge that India is relatively a low trust society.We cannot trust a certificate, license, permit to be genuine on its own merit.Even the most trivial of the information like an ‘address’ cannot be trusted without a ‘proof’ or someone certifying it via a background check.

Even Indian regulations prefer to be stay gray for a business to know if it is doing right or wrong. For example, we ran from pillar to post to understand if Makemydabba requires a food license or not. We still do not know the answer. We consulted numerous lawyers, CAs, experienced food business houses and of course the kind mentors in Hyderabad. No government office / official will say with authority how you should register your company and how you can be fully legal. But all of them will come after you the day something goes wrong.

Its extremely important for startups in this space to take this incident as an eye opener and be cognizantabout the risks involved.Simply put, if your business is enabling two unkown people to meet, the business has to put in place systems to take the risk completely out.That is, risk to consumer, vendor and you the business!

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This book from Vinay Dhabolkar & Rishikesha T. Krishnan “8 steps to Innovation” belongs to the category of books that gives us specific tools that can be readily used. It is in the league of books like Switch and The Lean Startup. It is written in the Indian context but the principles can be applied elsewhere too.

In this book, we get to find specific tools like creating a challenge book, democratizing innovation, designing and running rapid low cost experiments, iterating the business model and many more. There is a danger in writing such a book. A heavy weight process manual may claim the same “tools for you to succeed”. They may also claim that the tools prescribed by them are an amalgamation of all the “best practices” discovered elsewhere. The problem with best practices is that they fail in narrating the context. This is where the new breed of books like the “8 Steps to Innovation” differs. Each tool that gets introduced in this book comes along with a detailed narration of a true story thus laying out a strong foundation for context. Thus the tool becomes a “bright spot” (a concept mentioned in the book Switch) and not a best practice.

Being a first-time entrepreneur (during my YAssume/MakeMyDabba days), there were two kinds of books that attracted my attention.

In the first category are the books that inspired and motivated me. These inspired me to take up the challenge of creating something new. Books like Founders At Work, Stay Hungry Stay Foolish, Black Swan, Outliers fall in this category. Some of these are biographical and anecdotal. Others are conceptual and theoretical.. Such books play an important role in shaping one’s intent and intellect to take up a bigger/newer/different challenge. These books provided me the encouragement to jump out of a corporate job and to become an entrepreneur. However, once you hit the ground, not many of these books come in handy to deal with real-life situations. There is a danger that one loses hope quickly and starts to conclude that he or she is not a maverick enough like the celebrated ones figured in these books.

There comes for the rescue, the second category of books. That’s where I list this book “8 steps to innovation”, prominently alongside books like Lean Startup and Switch. At MakeMyDabba (second of my startups), we managed to take the idea of creating a web platform to help people at home to list and sell home food to others in their neighborhood, from drawing board to a successful launch in less than 8 weeks. We owe a lot to books like “8 Steps to Innovation” that provide hands-on tools to perform rapid experimentation and to get to customers faster. Such books can easily and proudly claim to be a part of the startup culture!

Lean Startup model teaches us how to make a beginning in conditions of extreme uncertainty. The concept of Minimum Viable Product (MVP) and Leap Of Faith Assumptions are devised to keep the validated learning as the main objective. What follows is the Customer Development which is all about identifying the customer and collecting the right feedback to course correct. In real world situations it is common that the feedback collected can be overwhelming and daunting. Systematic Innovation is a set of tools that can be used to prioritize and pick the right feedback to work on. Systematic Innovation also helps us on how to generate ideas, how to design experiments and more. This 45 minutes lecture quickly introduces how to marry these two Lean Startup and Systematic Innovation.

-Akki

Nov 30, 2013

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(I thought I will keep quite and stay away from startup/entrepreneur world after shutting down my ventures. As it turned out, I became more active and vocal. Evidently, more and more youngsters want to try a “startup” these days. Some of them are approaching me to find answers on how to go about starting the new journey. I am trying my best to share whatever I managed to learn in the past 3 years.)

Disclaimer : I have no qualification in this subject let alone being an expert. Following is a very high level view from someone who started as a novice 3 yrs back and forced to understand some of this. Target audience for this post are those who come from pure technology back ground with an idea of trying a startup but do not know how to go about funding the adventure. Please consult experts before settling down to a strategy.

1. Self Funding

No brainer… this is nothing but you spending the money you have. Either your parents gave you a lot of money or you have made enough in your own career that you can “afford to lose”. Depending on how much you have, you may go up to validating the idea enough to quit your job and take the idea fully. But it is unlikely that you will be able to build a complete business with your own money unless it is a traditional zero-risk business (if there is any like that).

An example would be, if your dad owns a retail grocery shop and you want to start an online wing of the shop. Probably the existing business (read your dad) may fund this idea.

2. Debt

Debt is nothing but taking loan from someone or some institution to run your business. It could be an individual, bank or some other. Typically they give you loan for the interest they can make.

The Unsecured Loan is something you don’t have to attach any of your property to get the loan. But such unsecured loans are very few and will come with a lot of terms and conditions. Your friends and family may give you such unsecured loans but you may want to think twice to take such loans.

The Secured Loan is something that you will show some security to get the loan. It could be any fixed asset (land, flat, gold etc.) that you own.

People who lend you unsecured loan may pay some attention to your idea and its viability. When it comes to Secured Loan, lenders pay least attention (if any) to your idea and business viability. You don’t need to convince them about your idea but they should be convinced about the value of the fixed asset you are attaching.

Debt is a great option if you think your idea is zero-risky. For example, if you are planning to take a franchise of Pizza Hut in an upcoming multiplex+mall in a class A city, how wrong you can go?

Be aware that there are regulations about debt vs equity ratio you should maintain in India. For example, you cannot fund your company with 100% debt.

3. Friends & Family (& Fools)

This is the option you go to your friends and family asking for investment. You will give part of your company (equity) to them in return of their investment. The biggest debate in this round is how to set a price to the equity? If someone gives you Rs 10,00,000/- (Ten Lakhs), should you be giving 1% of the company or 10% ? All that you have is an idea that is yet to be validated and the business may not even be in sight. There are creative ways to arrive at this number like convertible note, but they are too advanced for the scope of this post I want to limit to.

Theoretically, you have to convince Friends and Family about your idea and business for them to invest in your idea. But in reality, most of them invest because of their trust on you and your team than the idea.

If your idea is an innovative one, you are advised to involve friends & family even if you can put in a lot of your own money and/or debt. Besides reducing your personal risk, involving those friends and family who may be seen as experts/experienced in the area of the idea will build credibility to you and your idea. Imagine you going to an investor or a potential customer saying CEO of a product company has invested 25 Lakhs in your business! That 25 Lakhs endorsement from an industry leader is worth much more than what 25 Lakhs can pay you for your operations. It is absolutely a smart thing to give a much bigger equity to such people for the same amount of investment they make compared to a novice making the investment.

4. Angels

Angels are individuals who regularly (supposedly) on lookout for investment opportunities in new ideas and businesses. Typically they are experienced professionals who may have made enough money. Each individual angel will have his/her reasons why they want to invest. The reasons range from “staying connected to evolutions”, “giving back to echo system that supported them when they began”, “to make more money” and many more.

A quick search on internet reveals that there are many “angel groups” at national and city level in India and elsewhere. An angel group is just that, a group of angels. The advantage of these groups is that they are more organized and you may not have to pitch for each one of them in the group separately.

The downside from my personal experience is that it is difficult to convince a group about a new idea. One black-hat in the room can spread the negativity even before the idea starts flying. Rarely we find ideas that any group of more than 5 will instantly like and get convinced. Unfortunately, the one who is completely sold and excited typically do not talk as much as the one who quickly found “a reason” why it may not work. Almost all the ideas initially will have more than one reason why things may not work. My personal advise is, avoid group settings early on and until the idea is validated somewhat and a prototype is built. While this group mentality is true even for F&F and other options, Angel groups is probably the first time you encounter a group setting.

The best thing that can happen to you at Angel round is if you can convince one industry leader in your space about your idea. If that person writes a check to you, he/she will also take you to others. We call him/her a “lead investor”. Others will be less violent at you to dismiss your idea looking at who endorsed it earlier.

5. Seed Funds

Seed fund are mini VCs. These are institutional investors just like VCs. Once your prototype is done and small revenue started trickling, you are ready for a seed fund. There are a plenty of seed funds and quick search will reveal a few. I do not want to give any links and promote any.

These funds will pool money from their sources and invest in multiple startups. They have diligent process to evaluate ideas, teams and business before they decide what they want to invest in. They are also good at giving a value to your company.

Seed funds typically invest much smaller amounts compared to VCs. Typically Rs 0.5 to 1.5 Crores is what you may expect from them. Some of them may have an appetite to go beyond 3 Crores too.

Seed funds expect to exit early (say 18 months) unlike VCs who can wait for many years.

In summary, Seed funds come in early, invest small amounts and would like to exit sooner compared to VCs.

6. Venture Capitalists (VCs)

Venture Capitalists come with much deeper pockets compared to Seed funds. They can invest large amounts like Rs 10 Crore or even 100 Crores and more. They take a larger chunk of your company. They can wait for longer duration say beyond 5 yrs to break even. Sometimes they come back and invest more second time around if your company does really well.

First time when VC come around and makes the big investment, people call it Series-A. The subsequent investment is called Series-B.

Typically the company gets an authoritative value when a VC puts in the money. Say if a VC puts in Rs 10 Crores and takes 25% equity, your company is valued at Rs. 40 Crores. All you founders and other equity holders can now compute how rich you are given your own equities in the company. Your equities do mean something from then on!

(I welcome any corrections or additional information in comments to make it more helpful for the beginners)

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If I have to bump into Eric anywhere, that is what I want to ask him.Trust me, it’s not just an academic nitpicking.I am witnessing some practical disservice this name is doing to the wonderful and pragmatic approach, that is, Lean Startup.

Startup:

Lets take the second part ‘startup’ first.Any conversation about lean startup invariably has to start with a disclaimer that ‘startup’ is not referring only to the real world startups working from garages and like.

Eric’s definition of a startup is :

‘A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.’

He elaborated how a startup situation can exist inside an enterprise, an NGO or anywhere else.

There is nothing to disagree with Eric on his views about startups.However, since the word startup has been stereo typed, cinematized and hence internalized with a narrowed view, why stuck with that?

Lean:

“I know lean, don’t think I need another book on Lean” I heard this multiple times when I suggested ‘Lean Startup’.

Lean is a borrowed concept from Toyota to identify and eliminate waste within manufacturing process. Mary Poppendieck has cleverly applied that to the software development life cycle. It’s all about finding what constitutes waste in SDLC and how to eliminate it.

By the time ‘Lean Startup’ came out, this ‘Lean Software Development’ was already well established.If we dig deep, these two ‘Lean Startup’ and ‘Lean Software Development’ do not contradict each other.Lean startup helps us not to waste our resources. Agreed.But the approach and tools given have so little in common.Or, knowing everything about one doesn’t make us proficient with the other.

Then why ‘lean’ in the title?

The ideas that ‘lean startup’ brought out (or highlighted) are‘leap of faith assumptions’, ‘minimum viable product’, ‘customer development’ etc..These are the ones that must have madeout to the title.

Well, some of you know this already. Few of you suspected but didn’t ask me. (But most of you don’t care anyway).

My entrepreneur journey has ended on July 31st 2013. We relieved everyone from Makemydabba.com, shutdown the site and vacated the office. Some of us have already got jobs and are settling down. I personally am still on look out for my next adventure (ok, lesser than an adventure this time) (This as of Aug 30, 2013).

The next question would be what happened? MakeMyDabba was supposed to be a success right! I am hoping to document all my learning from my startups in some form some day, but the following is the quick summary for the enquiring minds.

MakeMyDabba : This is indeed a success as far as the idea is concerned. We applied all our learning from our earlier startup YAssume and ensured we will not repeat the mistakes. Went to market within 3 weeks of deciding to start MakeMyDabba. Validated both supply and demand of the business. Partly validated the operations model but there were still lingering questions about operations at the time of our exit. But the main reason why we had to shutdown was that we ran out of cash to run the operations. We failed to secure enough funds to reach the traction needed to attract institutional investors. We founders have already expensed all our own funds and friend & family during our first startup YAssume.

YAssume : This is a highly technical product targetting sales people. We nailed down some complex problems, devised few original algorithms we can be proud of. But our focus was not on business for very long. We did not engage ourselves with our true users of the system. We did talk to people but they were not the true audience of our system. We mistook the smart-ass opinions to be the feedback needed for the system. We made steep turns and big development cycles re-orienting the system multiple times within 2 years. At the end we had a huge complex system but not many real users vouching by it. We had to shut it down and move on in Jan/Feb 2013.

What Next ? No secrete, I am truly disappointed. We were a great team in comparison to many around. We manage to solve almost all the problems we encountered during our journey. But we failed in the business.

I have no regrets though. If the clock is turned back, I will do exactly the same, that is leave the safe job and try a startup.

I personally lost quite a bit of money on these startups. But learned a lot. I probably would have got couple of MBA degrees with the same investment and time. Would my learning from these startups match to those MBAs? Have to wait and watch.

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(Following is the gist of what I spoke at Hyderabad Startup Saturday on Sep 14, 2013)

Lets start with a seemingly unrelated question. Where would be household refrigerator manufacturers be investing now?

In 19th century it was ice-trade a huge global business that addressed this market. Then came the ice plant in 20th century followed by household refrigerator. Are we going to have these refrigerators after 100 years? If not, where will this market go?

I heard someone arguing that refrigerator manufacturers must be investing in bio-technology or GMO (Genetically Modified Organism). What if the next generation produces doesn’t need refrigeration to stay fresh for longer duration?

That kind of forward looking investment can happen only when the organization defines its business as “keeping food fresh” instead of any “ice-trade”, “ice plant” or “household refrigerator”.

Unfortunately, the software industry does not move at the rate of a century at a time. Betting on something like “ice-trade” that will give 100 year life does not happen in the high tech world. That compels the organizations to go the equivalent of “keeping food safe” of objectives in the industry. The only way organizations can survive the test of time is to have this vision and adaptability.

The Agile revolution gave enough tools and changed the mindset required for adaptive planning. But Agile’s adaptive planning is limited at the solution level “Problem known, solution unknwn”. Agile starts at the point the problem is fully defined. In our story, Agile is what that helps in finding the best way to build a ship and transport the ice to the destination. Agile suggests not to build a ship in isolation hoping that the end result is going to work as planned and desired. It lets you start with small, iterate and keep aligning your course towards the desired solution. That whole process is termed as Adaptive planning which is at the solution level.

The situation is entirely different if the problem is also not fully known at the start, which is the case with most startups. The lean-startup school is all about handling this situation “problem not known and solution not known”. Every idea comes up with set of “leap of faith” assumptions. Lean starup book gives the example and compares Sony’s Walkman and Apple’s iPod. When Sony first created Walkman it had to first validate the assumption that people want to listen to music on move and in public places. Where as Apple doesn’t have to deal with that assumption which is already validated by Sony. But Apple has its own set of assumptions like would people like downloading music from internet?

The more number of such “LOF” assumptions that are there in the business, the more probability of some of them getting validated negatively. The startup has to hear this from the market as quickly as possible and make the course correction. This is the adapt mindset that lean startups must possess.

The entire Customer development theory of Lean Startup is about identifying the right customers and quickly validating these LOF assumptions. The result is always a course correction (pivot). The minimum viable product (MVP) is all about how quickly we can validate these assumptions.

Here are couple of words of caution from my personal experience of two failed startups. Make sure the feedback you are getting on your MVP is from the right users of the system. If your end users are sales people, it must be a sales person on the ground giving you the feedback. Not the sales VP. If it is a solutions for HR department, get the feedback from the HR personnel on the ground who are going to use the system. Not the Head of HR. We must know the difference between a “smart-ass opinion” and “a critical feedback”

The other caution is about developing some level of indifferent to your idea when you had to make tweaks to it and pivot. Very quickly you will face the Elephant and rider in you. The feedback and rationale part tells you that you have to pivot. But the emotional side of you that has been parading passionately with the idea doesn’t let you pivot that easily. The worst thing that can happen is closing your eyes and pretending “all is well”.

Keeping my bias towards lean fully intact, I more than once wondered how this plays out with early stage investors (individuals, angels and VCs). Do investors understand and appreciate Lean Startup?

Imagine, having to present to an investor your story. You are presenting an idea that you believe will work. But you are a humble and learned lean startup practitioner. You know you have many Leap Of Faith assumptions that need to be validated throughout your course.

If you are the CTO/Architect of the solution what would you do? Wouldn’t you try to build a product that is flexible and can quickly be pivoted towards new direction? This is more than modularization. This is laying a platform keeping the vision intact.

(Caution : Platformization does not mean you sit in a dark room building bottom up with no feedback loop from external world. This is more about how you organize your code)

For an investor who doesn’t understand this, it can sound as one or more of the following

You are not entirely sure what you are trying to do

You are not “passionate enough” on your idea.

Your focus is too broad and you seem to be trying to do too many things. (Platform is supposedly a tabu word in investment circles while that is the only savior for most companies surviving today.)

Eric’s lean startup literature is silent about this investment struggle of startups.

If the company has to pivot and bring out a new value proposition, how would the investors look at them?

While I am mulling over this, I attended this TiE Seattle event some time back. It’s quite a revelation to hear some of the angels actually endorsing this ability and openness to pivot as a strength and not a weakness.

As much as we the self-congratulatory-smartass-startup-geeks are moving along the new ways of innovation (read lean startup), investors are not behind. At least not all of them.

Read this excerpt from Chris Devour (Founder’s Co-op)

“…if you are in the fight, and you’ve actually gone out there and you’ve got a team and you are building stuff and you are doing customer development, and all of that great, crazy lean stuff, I want to know what you are up to…”

If that is not enough here is what Dave Parker (Founder Institute) has to say

“The reason that team is so important is because your lame-ass idea is going to get pivoted a couple times, maybe more. So, if I back the team and not the idea, the ability for the team to go: ‘We had a hypothesis, it didn’t work, oh shit, we have to go find another hypothesis.’ And, it is by the way, an ‘Oh, shit’ moment. Because you are like: ‘Oh shit, everything we’ve been working for just it a wall.’ And that’s not an iteration, that’s a pivot. ‘We used to sell meat, we now sell cars.’ It is that wholesale of a change … and pivots are painful. And the reason you invest in the team is because you are going to have a pivot…. The idea that you think you are going to go do today for most of you … is not the idea you are going to finish with.”

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Agile India 2012 is going to be the Asia’s largest Agile conference. It is the first Agile Alliance conference to be held outside North America. The conference is taking a great shape with some wonderful stages.

Lean Startup is one of the stages being produced at this conference. Given the surge of product startups in India, we believe the Lean Startup stage will provide a great help to the community. On this background, we invite you to propose an appropriate session at this stage.

Startups in India are on the rise. Specifically the product startups as it is discussed in this report http://tinyurl.com/6axyxbf .

Arguably, the Indian IT industry is built on the strong service/consulting mindset and heavy weight process models. That mindset and tools are ill equipped to offer any value to the startups. That also resulted in a clear scarcity of workforce suitable for startups.

On the other hand, Agile has been the champion of the startups for all the new generation product development organizations around the world. The ability it offers to mend ways to suite the changing market demands, its natural preference to create self managed teams are some of the reasons.

The emergence of “Lean Startup” concept has been readily accepted as the natural fit for the needs of such startups. It is considered to be the most innovative set of ideas to enter the Agile arena in the last few years. It pushes the boundaries beyond what people previously considered feasible and calls Agile orthodoxy into question. It is remaking the software industry, starting with startups and now changing enterprises as well.

This stage focuses on bringing out some of the following themes but not limited by them.

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Couple of years back, it was all still green! The word ‘recession’ hadn’t surfaced yet. Suresh (not the real name) walks in for an interview. He had 4 years of industry experience. He had cleared the preliminary HR round. He had also cleared the first technical round after supposedly have answered real tough grinding questions that my seasoned developers had asked him. Now it was my turn to interview him. After all the courteous questions, I realized that this guy is too much of self-congratulatory kind. He appeared very thrilled about his successful career. This was fine with me until he casually remarked that he already had an offer elsewhere and he was there just to give me a chance to interview him That’s when I changed gears and I asked him the question “Suresh, when did you fail the last time in your job? “. Honestly, I didn’t realize the significance of the question at that time. But I understood that I just found one good question that must be asked to everyone as soon as I heard his answer. “I never failed. I am a successful professional and I never allow myself to fail” Then I asked, “describe the last tough situation you faced and how did you handle it?” That went on and on and it didn’t take too long for me to make up my mind on that guy.

But I kept on thinking about this conversation. Humor me with a few teasers…

“A successful professional is someone who has never failed”….True or False?

All the greats irrespective of their fields – Gandhi, Steve Jobs, Michael Jordan, Madam Curie – reached there without any failure. True or False?

Who would have tasted more failures? One who reached great heights or someone who lived and retired in a modest routine job?

Did Sergey Bubka, who managed to break world record after world record in the sports of pole vault, clear the bar every time he tried? Or did he go all the way till he failed to cross the bar?

We all know the answers to these questions. How are then all of us in the Indian software industry so afraid of failing?

I personally have (unsuccessfully) tried to mentor people to write in their self-appraisals instances where they fell short of their own expectations. The predominant service industry is marked by the presence of too many shock absorbers between the market reality and the people like us on the shop floor. The ultimate success or failure of the projects has little or no impact on us. We keep on getting our hikes, bonuses and promotions. We are told to be the guardians of the process and we managed the status quo.

Unfortunately, the service industry as we know is dying. The false shield of processes is disappearing. Time has come in and a new phrase “software craftsmanship” has started echoing in conferences. We have to decide whether we want to endorse the change voluntarily now or to be forced to change when it is too late.

We need to find zones where we can raise those performance bars where we have chance of failure – zones, where we can truly realize our own limitations – zones, where a programmer, tester, business analyst, technical writer, or dba can realize his/her true place in the prevailing world standards in the respective craft.

Unfortunately, the big enterprises especially in the service industry seldom give such opportunities. A casual observation reveals that the Industry (including service Industry) is trying hard to make the transformation towards the new harsh reality. They are all struggling with their un-yielding elephants.

That is where the startups come in to the rescue. The lean agile startups are where the limits are always tested. Envelope is always in stretched state. There are about 400+ startups in Hyderabad alone today. This is the new hope for anyone to test his or her true limits.

Anyone who is smart and serious about his or her career has to make the move now. While the big guys are struggling with their elephants, jump on now. Test your limits until you fail, mark the bar and cross it again until you fail. The earlier one takes the step, the further they will be from others who wake up later to the new reality.